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1、macroeconomics fifth editionN. Gregory MankiwPowerPoint Slides by Ron CronovichCHAPTER ELEVENAggregate Demand IImacro 2002 Worth Publishers, all rights reservedCHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 1ContextChapter 9 introduced the model of aggregate demand and supply. Cha
2、pter 10 developed the IS-LM model, the basis of the aggregate demand curve.In Chapter 11, we will use the IS-LM model tosee how policies and shocks affect income and the interest rate in the short run when prices are fixedderive the aggregate demand curveexplore various explanations for the Great De
3、pressionCHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 2The intersection determines the unique combination of Y and r that satisfies equilibrium in both markets.The LM curve represents money market equilibrium.Equilibrium in the IS-LM ModelThe IS curve represents equilibrium in th
4、e goods market.ISY rLMr1Y1CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 3Policy analysis with the IS-LM ModelPolicymakers can affect macroeconomic variables with fiscal policy: G and/or Tmonetary policy: MWe can use the IS-LM model to analyze the effects of these policies.ISY rLM
5、r1Y1CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 4causing output & income to rise. IS1An increase in government purchases1. IS curve shifts right Y rLMr1Y1IS2Y2r21.2. This raises money demand, causing the interest rate to rise2.3. which reduces investment, so the final increase
6、in Y3.政府支出增加，利率上升，原因：政府支出增加，收入上升，货币市场市场上货币需求增加为什么货币政策可能失效，1方面因为利率有下限，0利率就已经流动性陷阱了。2一个经济体不能总通过刺激来调节，一旦刺激久了，人们预期改变，将引起通货膨胀。量化宽松调节的是中长期的利率.怎样解决挤出效应？扩大货币供给，这样利率就不会上升。CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 5IS11.A tax cutY rLMr1Y1IS2Y2r2Because consumers save (1MPC) of the tax
7、cut, the initial boost in spending is smaller for T than for an equal G and the IS curve shifts by1.2.2.so the effects on r and Y are smaller for a T than for an equal G. 2.CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 62. causing the interest rate to fall ISMonetary Policy: an i
8、ncrease in M1. M 0 shifts the LM curve down(or to the right)Y rLM1r1Y1Y2r2LM23. which increases investment, causing output & income to rise. CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 7Interaction between monetary & fiscal policyModel: monetary & fiscal policy variables (M, G
9、and T ) are exogenousReal world: Monetary policymakers may adjust M in response to changes in fiscal policy, or vice versa.Such interaction may alter the impact of the original policy change. CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 8The Feds response to G 0Suppose Congress
10、increases G.Possible Fed responses:1. hold M constant2. hold r constant3. hold Y constantIn each case, the effects of the G are different: CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 9If Congress raises G, the IS curve shifts rightIS1Response 1: hold M constantY rLM1r1Y1IS2Y2r2
11、If Fed holds M constant, then LM curve doesnt shift.Results:CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 10If Congress raises G, the IS curve shifts rightIS1Response 2: hold r constantY rLM1r1Y1IS2Y2r2To keep r constant, Fed increases M to shift LM curve right.LM2Y3Results:增加政府投
12、资的同时增加货币供给，则可以维持利率不变，Y增加。但是这个模型的问题是他没有考虑价格变化，有可能导致通货膨胀。另一方面，没有考虑政府评级的问题CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 11If Congress raises G, the IS curve shifts rightIS1Response 3: hold Y constantY rLM1r1IS2Y2r2To keep Y constant, Fed reduces M to shift LM curve left.LM2Results:Y
13、1r3CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 12Estimates of fiscal policy multipliersfrom the DRI macroeconometric modelAssumption about monetary policyEstimated value of Y / G Fed holds nominal interest rate constantFed holds money supply constant1.930.60Estimated value of Y
14、 / T 1.19 0.26CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 13Shocks in the IS-LM ModelIS shocks: exogenous changes in the demand for goods & services. Examples: stock market boom or crash change in households wealth C change in business or consumer confidence or expectations I a
15、nd/or C导致IS曲线右移，股票市场的繁荣会有财富效用，使人们认为自己更有钱了CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 14Shocks in the IS-LM ModelLM shocks: exogenous changes in the demand for money. Examples:a wave of credit card fraud increases demand for moneymore ATMs or the Internet reduce money demandCHAP
16、TER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 15EXERCISE:EXERCISE: Analyze shocks with the IS-LM modelUse the IS-LM model to analyze the effects of1.A boom in the stock market makes consumers wealthier.2.After a wave of credit card fraud, consumers use cash more frequently in transac
17、tions.For each shock, a.use the IS-LM diagram to show the effects of the shock on Y and r .b.determine what happens to C, I, and the unemployment rate.CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 16CASE STUDYCASE STUDY The U.S. economic slowdown of 2001 What happened1. Real GDP
18、growth rate1994-2000: 3.9% (average annual)2001: 1.2%2. Unemployment rateDec 2000: 4.0%Dec 2001: 5.8%CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 17CASE STUDYCASE STUDY The U.S. economic slowdown of 2001 Shocks that contributed to the slowdown1. Falling stock prices From Aug 200
19、0 to Aug 2001:-25%Week after 9/11: -12%2. The terrorist attacks on 9/11increased uncertainty fall in consumer & business confidenceBoth shocks reduced spending and shifted the IS curve left. CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 18CASE STUDYCASE STUDY The U.S. economic sl
20、owdown of 2001 The policy response1. Fiscal policylarge long-term tax cut, immediate $300 rebate checksspending increases:aid to New York City & the airline industry,war on terrorism2. Monetary policyFed lowered its Fed Funds rate target 11 times during 2001, from 6.5% to 1.75%Money growth increased
21、, interest rates fellCHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 19CASE STUDYCASE STUDY The U.S. economic slowdown of 2001 Whats happening nowIn the first quarter of 2002, Real GDP grew at an annual rate of 6.1%, according to final figures released by the Bureau of Economic Ana
22、lysis on June 27, 2002. However, in its news release of June 7, 2002, the NBER Business Cycle Dating Committee had not yet determined the date of the trough in economic activity, though it acknowledges that the economy seems to be picking up. CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand
23、 IIslide 20What is the Feds policy instrument?What the newspaper says:“the Fed lowered interest rates by one-half point today”What actually happened:The Fed conducted expansionary monetary policy to shift the LM curve to the right until the interest rate fell 0.5 points. The Fed The Fed targetstarge
24、ts the Federal Funds rate: the Federal Funds rate: it announces a target value, it announces a target value, and uses monetary policy to shift the LM curve and uses monetary policy to shift the LM curve as needed to attain its target rate. as needed to attain its target rate. CHAPTER 11CHAPTER 11 Ag
25、gregate Demand II Aggregate Demand IIslide 21What is the Feds policy instrument?Why does the Fed target interest rates instead of the money supply?1) They are easier to measure than the money supply2) The Fed might believe that LM shocks are more prevalent than IS shocks. If so, then targeting the i
26、nterest rate stabilizes income better than targeting the money supply. (See Problem 7 on p.306)CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 22IS-LM and Aggregate DemandSo far, weve been using the IS-LM model to analyze the short run, when the price level is assumed fixed. Howeve
27、r, a change in P would shift the LM curve and therefore affect Y. The aggregate demand curve (introduced in chap. 9 ) captures this relationship between P and YCHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 23Y1Y2Deriving the AD curveY rY PISLM(P1)LM(P2)ADP1P2Y2Y1r2r1Intuition for
28、 slope of AD curve:P (M/P ) LM shifts left r I Y CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 24Monetary policy and the AD curveY PISLM(M2/P1)LM(M1/P1)AD1P1Y1Y1Y2Y2r1r2The Fed can increase aggregate demand:M LM shifts rightAD2Y r r I Y at each value of PCHAPTER 11CHAPTER 11 Aggr
29、egate Demand II Aggregate Demand IIslide 25Y2Y2r2Y1Y1r1Fiscal policy and the AD curveY rY PIS1LMAD1P1Expansionary fiscal policy (G and/or T ) increases agg. demand:T C IS shifts right Y at each value of PAD2IS2CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 26IS-LM and AD-AS in the
30、 short run & long runRecall from Chapter 9: The force that moves the economy from the short run to the long run is the gradual adjustment of prices.risefallremain constantIn the short-run equilibrium, ifthen over time, the price level willCHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIs
31、lide 27The SR and LR effects of an IS shockA negative IS shock shifts IS and AD left, causing Y to fall. Y rY PLRASLRASIS1SRAS1P1LM(P1)IS2AD2AD1CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 28The SR and LR effects of an IS shockY rY PLRASLRASIS1SRAS1P1LM(P1)IS2AD2AD1In the new sh
32、ort-run equilibrium, CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 29The SR and LR effects of an IS shockY rY PLRASLRASIS1SRAS1P1LM(P1)IS2AD2AD1In the new short-run equilibrium, Over time, P gradually falls, which causesSRAS to move downM/P to increase, which causes LM to move do
33、wn CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 30AD2The SR and LR effects of an IS shockY rY PLRASLRASIS1SRAS1P1LM(P1)IS2AD1Over time, P gradually falls, which causesSRAS to move downM/P to increase, which causes LM to move down SRAS2P2LM(P2)CHAPTER 11CHAPTER 11 Aggregate Deman
34、d II Aggregate Demand IIslide 31AD2SRAS2P2LM(P2)The SR and LR effects of an IS shockY rY PLRASLRASIS1SRAS1P1LM(P1)IS2AD1This process continues until economy reaches a long-run equilibrium with CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 32EXERCISE:EXERCISE: Analyze SR & LR effe
35、cts of Ma.Draw the IS-LM and AD-AS diagrams as shown here. b.Suppose Fed increases M. Show the short-run effects on your graphs. c.Show what happens in the transition from the short run to the long run. d.How do the new long-run equilibrium values of the endogenous variables compare to their initial
36、 values? Y rY PLRASLRASISSRAS1P1LM(M1/P1)AD1CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 33The Great DepressionUnemployment (right scale)Real GNP(left scale)CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 34The Spending Hypothesis: Shocks to the IS Curveasserts
37、 that the Depression was largely due to an exogenous fall in the demand for goods & services - a leftward shift of the IS curveevidence: output and interest rates both fell, which is what a leftward IS shift would causeCHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 35The Spending
38、Hypothesis: Reasons for the IS shift1.Stock market crash exogenous C Oct-Dec 1929: S&P 500 fell 17%Oct 1929-Dec 1933: S&P 500 fell 71%2.Drop in investment“correction” after overbuilding in the 1920swidespread bank failures made it harder to obtain financing for investment3.Contractionary fiscal poli
39、cyin the face of falling tax revenues and increasing deficits, politicians raised tax rates and cut spendingCHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 36The Money Hypothesis: A Shock to the LM Curveasserts that the Depression was largely due to huge fall in the money supplyevi
40、dence: M1 fell 25% during 1929-33. But, two problems with this hypothesis:1. P fell even more, so M/P actually rose slightly during 1929-31. 2.nominal interest rates fell, which is the opposite of what would result from a leftward LM shift.CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand II
41、slide 37The Money Hypothesis Again: The Effects of Falling Pricesasserts that the severity of the Depression was due to a huge deflation:P fell 25% during 1929-33. This deflation was probably caused by the fall in M, so perhaps money played an important role after all.In what ways does a deflation a
42、ffect the economy?CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 38The Money Hypothesis Again: The Effects of Falling PricesThe stabilizing effects of deflation:P (M/P ) LM shifts right YPigou effect: P (M/P ) consumers wealth C IS shifts right YCHAPTER 11CHAPTER 11 Aggregate Dema
43、nd II Aggregate Demand IIslide 39The Money Hypothesis Again: The Effects of Falling PricesThe destabilizing effects of unexpected deflation:debt-deflation theoryP (if unexpected) transfers purchasing power from borrowers to lenders borrowers spend less, lenders spend more if borrowers propensity to
44、spend is larger than lenders, then aggregate spending falls, the IS curve shifts left, and Y fallsCHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 40The Money Hypothesis Again: The Effects of Falling PricesThe destabilizing effects of expected deflation: e r for each value of iI bec
45、ause I = I (r ) planned expenditure & agg. demand income & output CHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 41Why another Depression is unlikelyPolicymakers (or their advisors) now know much more about macroeconomics:The Fed knows better than to let M fall so much, especially
46、 during a contraction.Fiscal policymakers know better than to raise taxes or cut spending during a contraction.Federal deposit insurance makes widespread bank failures very unlikely.Automatic stabilizers make fiscal policy expansionary during an economic downturn.CHAPTER 11CHAPTER 11 Aggregate Deman
47、d II Aggregate Demand IIslide 42Chapter summary 1. IS-LM modela theory of aggregate demandexogenous: M, G, T, P exogenous in short run, Y in long run endogenous: r, Y endogenous in short run, P in long run IS curve: goods market equilibriumLM curve: money market equilibriumCHAPTER 11CHAPTER 11 Aggre
48、gate Demand II Aggregate Demand IIslide 43Chapter summary 2. AD curveshows relation between P and the IS-LM models equilibrium Y. negative slope because P (M/P ) r I Y expansionary fiscal policy shifts IS curve right, raises income, and shifts AD curve rightexpansionary monetary policy shifts LM curve right, raises income, and shifts AD curve rightIS or LM shocks shift the AD curveCHAPTER 11CHAPTER 11 Aggregate Demand II Aggregate Demand IIslide 44
